Commercial risk models contain 50–100 factors, but most of the systematic variance in equity long-short returns is explained by a smaller set of interpretable factors. Knowing what each factor measures, why it earns the returns it does, and how it behaves in stress periods lets a portfolio manager identify which systematic bets are being taken implicitly — and when those bets become dangerous. Ignorance of factor dynamics is not a neutral posture; it is an undisclosed bet.
In this lesson
- The four factor families
- Economic environment factors
- Trading environment factors
- Technical factor: momentum
- Factor interactions and portfolio implications
Before you start
- The Arbitrage Pricing Theory: Factor Structure and Pricing
- From Thesis to Position: The Practitioner Alpha Pipeline
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